Refinancing a car loan means replacing your current car loan with a new one, usually to change the repayment, the term, the lender or the loan structure. It can help in some situations and cost you more in others. This guide explains what actually changes when you refinance, how lenders assess the request, what it can cost, and how to check whether it makes sense before you apply. It is general information, not personal advice.
What refinancing a car loan changes
When you refinance a car loan, a new lender (or your existing lender, on new terms) pays out your current loan and you start a new loan secured over the same vehicle. Four things can change: the lender, the interest rate and fees, the loan term and repayment amount, and the loan structure, such as moving to or away from a balloon. Refinancing does not change the car, and it does not wipe the balance you owe. The new loan has to cover the payout figure on the old one.
If you are comparing lenders for a first car loan rather than replacing one, start with our car finance page. If you want the wider picture across loan types, see vehicle finance. This page is about replacing a loan you already have.
When refinancing a car loan can make sense
- Your circumstances have improved. A stronger income, a longer work history or a cleaner credit file can change how a lender views the loan.
- Your current loan has terms that no longer suit you. This might be a repayment that is hard to manage, a loan that restricts extra repayments, or a structure you want to change.
- A balloon or residual is approaching. You may need a plan for the final amount. See the section on refinancing a balloon below.
- You want to consolidate or restructure. Lenders have different policies on whether they will include other debts, so ask before you assume it is possible.
When it may not make sense
- The total cost goes up. A lower repayment from a longer term can mean you pay more in total. ASIC’s MoneySmart warns that switching to a loan with a longer term can cost more overall even if repayments drop.
- Fees outweigh the benefit. Exit, establishment and other fees can absorb a saving, especially late in the loan when there is less interest left to save.
- The vehicle is worth less than the balance. Many lenders will not lend more than they value the car at. Check the section on vehicle value and balance below.
- The car is older or has high kilometres. Lender policies on vehicle age and mileage vary, and some will not refinance an older vehicle.
Refinance car loan checklist: what to find out first
- Your payout figure. Ask your current lender for a written payout figure with an expiry date. It is not the same as the balance on your last statement.
- Your exit costs. Check your contract for early termination, early repayment or similar fees.
- Your remaining repayments. Add them up, so you know the total you would pay if you stayed.
- Your vehicle’s current value. Compare it with the payout figure.
- The new loan’s full cost. Ask for the interest rate, the comparison rate, all fees and the term, then compare the total, not only the repayment.
Eligibility and how lenders assess a refinance
A refinance is a new credit application, not an extension of the old one. Lenders typically look at your income and living expenses, your existing debts and commitments, your credit history, your employment or business situation, and the vehicle itself, including its age, type and value. Under responsible lending obligations, a lender must make reasonable inquiries about your situation, so expect to provide supporting documents. Approval is never guaranteed and is subject to lender criteria.
The vehicle matters as security. Lenders generally want to know the make, model, year and kilometres, and many will require the car to fall within their age limits at the end of the loan term. Whether a particular car qualifies depends on the lender.
Vehicle value vs outstanding balance
If you owe more than the car is worth, you are sometimes said to have negative equity. This matters because the new lender is taking the car as security, and many will lend only up to a percentage of its value. If the payout figure is higher than the value, you may need to pay the difference down, or the refinance may not be possible with some lenders. Ask the lender how it values the vehicle. A guide price from an online tool is a starting point only.
Payout figure, exit fees and other costs
| Cost | What it is | Where to find it |
|---|---|---|
| Payout figure | The amount needed to close your current loan on a given date, which can include interest accrued and fees | Written payout letter from your current lender |
| Early termination or exit fee | A fee some contracts charge if you close the loan early | Your current loan contract and the lender’s fee schedule |
| Establishment or application fee | A fee some lenders charge to set up the new loan | The new lender’s quote or disclosure documents |
| Ongoing fees | Account-keeping or similar regular fees | The new lender’s quote or disclosure documents |
| Other costs | Possible legal, valuation or security-registration charges | Ask the new lender what applies |
ASIC’s MoneySmart suggests checking for early repayment or exit penalties on your current loans and asking about application, legal and valuation costs on the new one. Ask for all of these in writing before you decide. Our guide to the comparison rate explains how to compare loans that have different fees.
Documents you may need
- Photo identification
- Proof of income, such as recent payslips, or for self-employed applicants, the documents the lender accepts
- Bank statements showing income and spending
- Your current loan statement and payout letter
- Vehicle details, including the registration and, if requested, evidence of the car’s condition and kilometres
- Details of other debts and regular commitments
Exactly what is required varies by lender and by your circumstances.
How the refinance process works, step by step
- Get your payout figure and contract details. Ask your current lender in writing.
- Work out your goal. Lower repayment, shorter term, different structure or a new lender?
- Check the break-even. Use the structure in the next section to compare the total cost of staying with the total cost of switching.
- Apply. Provide your documents and vehicle details to the new lender or broker.
- Assessment and approval. The lender assesses your application and values the vehicle. Timeframes vary by lender.
- Settlement. The new lender pays out the old loan and your new loan starts. Confirm the old account is closed and ask for confirmation in writing.
How to check the break-even (a structural example)
You do not need a rate to see the logic. Refinancing is only worth it if what you would pay by switching is lower than what you would pay by staying, or if you gain something you value, such as a structure that suits you better.
| Step | Stay with the current loan | Switch to the new loan |
|---|---|---|
| 1. Total future repayments | Remaining repayments × repayment amount (from your statement), plus any balloon | New repayment × new term, plus any balloon |
| 2. Costs of the change | None | Exit fee on the old loan + establishment and other fees on the new loan |
| 3. Total cost | Line 1 | Line 1 + line 2 |
| 4. Compare | If the “switch” total is lower, there may be a saving. If it is higher, you are paying more for the change. Also compare the term: a longer term can lower the repayment but raise the total. | |
To run your own numbers, use our repayment calculator, and the balloon payment calculator if your loan has a balloon. Calculator results are estimates only, not a quote or offer of finance.
Refinancing a loan with a balloon or residual
A balloon (sometimes called a residual) is a lump sum due at the end of the term. When it is coming due, your options generally include paying it from savings, selling the car, or refinancing the balloon into a new loan. Refinancing the balloon spreads the amount over a new term, but the new loan still has to be assessed and approved, and you will pay interest on the amount you carry. Our guide to balloon payment car loans explains how they work in more detail.
Refinancing with imperfect credit
If your credit history has marks on it, you may still have options, but the choices can be narrower and the terms can differ from those for borrowers with a clean file. Some lenders specialise in applicants with a less than perfect history, and a broker can help match your situation to the right lender. Check any new fees carefully, because the price of the loan can reflect the lender’s view of risk. Approval is not guaranteed. A good first step is to check your own credit report so you know what a lender will see.
Refinance vs sell or trade in the car
| Option | What it involves | Consider this if |
|---|---|---|
| Refinance | Keep the car, replace the loan | You want to keep the car but change the repayment, term, lender or structure |
| Sell privately | Sell the car and pay out the loan from the proceeds | You no longer want the car, and the sale price will cover the payout |
| Trade in | The dealer takes the car and may pay out your loan as part of the deal | You are buying another car. Check how any shortfall is handled so it is not rolled into the next loan without you noticing |
Refinance vs transfer or swap finance
These are different things. Refinancing replaces your loan on the same car. Transferring finance to another person moves the obligation to someone else, which usually needs the lender’s agreement and the other person’s approval. Swapping finance to another car is a separate request that depends on the lender and the contract. Our guides explain each one: transferring car finance, swapping finance to another car and getting out of a car finance agreement.
Refinance comparison at a glance
| Question | Refinance | Stay put |
|---|---|---|
| Lender and rate | May change, subject to approval | Stays as is |
| Repayment | Can be lower or higher, depending on the term and structure | Stays as is |
| Total cost | Depends on rate, fees and term. Compare the total, not only the repayment | Known from your current contract |
| Fees | Exit fee on old loan plus any new-loan fees | None for the change |
| Effort | New application, assessment and settlement | None |
| Best when | The benefit outweighs the costs of the change | The saving is small or the fees and term outweigh it |
Ready to look at your options?
Alpha390 Finance can look at your current loan, your car and your goals, and help you compare options before you commit. Start an application or make an enquiry.
Refinance car loan FAQs
What does it mean to refinance a car loan?
It means replacing your existing car loan with a new one, usually with a different lender or on different terms. The new loan pays out the old one, and the car stays as security. The goal might be a different repayment, term or structure.
Is it worth refinancing my car loan?
It depends on the total cost, not only the repayment. Add up the exit fee on the old loan and the establishment and other fees on the new one, then compare the total with what you would pay by staying. A longer term can lower repayments but raise the total.
Can I refinance a car loan with bad credit?
Sometimes. Some lenders consider applicants with credit issues, though choices can be narrower and costs can be higher. Approval is never guaranteed and depends on the lender’s criteria and your circumstances.
What fees can apply when I refinance?
Possible fees include an early termination or exit fee on the old loan and an establishment or application fee, ongoing fees and other costs on the new loan. Ask both lenders for the full list in writing.
What is a payout figure?
It is the amount needed to close your current loan on a specific date, which can include accrued interest and fees. Ask your lender for it in writing, because it is not the same as the balance on your last statement.
Can I refinance if I owe more than the car is worth?
It can be harder. Many lenders limit the loan to a share of the car’s value, so you may need to pay down the difference, or some lenders may decline the application.
Can I refinance a car loan that has a balloon payment?
Often yes, subject to lender criteria. The balloon can sometimes be refinanced into a new loan, but you will pay interest on the amount you carry, and the new loan must be approved.
Is refinancing the same as transferring a car loan?
No. Refinancing replaces your loan on the same car. Transferring moves the obligation to another person and needs the lender’s agreement.
How long does it take to refinance a car loan?
It varies by lender and by how quickly documents are supplied. Ask the lender or broker for their expected timeframes rather than relying on a general figure.
This article is general information only and does not constitute credit or financial advice. It does not take into account your personal objectives, financial situation or needs. Alpha390 Finance operates under Australian Credit Licence 506065 (Five Tees Pty Ltd). Lending is subject to approval, lending criteria, terms, conditions and fees. Calculator results are estimates only and are not a quote or offer of finance.
Written and reviewed by the Finance Director at Alpha390 Finance.
Sources: ASIC MoneySmart, Debt consolidation and refinancing (accessed 9 October 2026).
